How Things Work:
The FTC’s Revolving Door

Deborah Platt Majoras, the chair of the Federal Trade Commission (FTC, the leading U.S. consumer protection agency), from 2004 to 2008, stepped down from her job at the end of April. Before stepping down, she announced she would become vice president and general counsel for Procter & Gamble (P&G).

Asked about the propriety of the move, FTC spokesperson Nancy Judy explains that Majoras will need to abide by a year-long “cooling off” period. She’ll never be able to represent P&G before the Commission on matters on which she worked while at the FTC. And once she announced that she would be taking a job with P&G, she removed herself from any matters that might affect the company.

Shira Mintz, who is the assistant general counsel for ethics at the FTC, says that Majoras is “extremely conscientious” about ethical matters, and that everything she has done is above board.

OK, but is there any concern about appearances here? Or is this just how things work?

“It is how things work,” says Mintz. “The nature of the business is the revolving door.”

“You get extremely qualified people to come into government, and then they go back into the real world,” says Mintz. “Real world” means well-paying corporate work.

Majoras came to the FTC from corporate law firm Jones Day. Jones Day claims more than half of the Fortune 500, including P&G, as clients.

The FTC is an independent federal agency with authority over both consumer protection and competition policy. It is the key federal agency regulating marketing practices. Given the breadth of the FTC’s jurisdiction and the breadth of P&G’s product line, what the FTC does — and does not do — is of potentially enormous importance to P&G.

Under the Bush administration, including the period since Majoras became chair in 2004, the FTC has — in the view of critics and admirers — proceeded cautiously and favored industry self-regulation over mandatory rules.

A number of the issues handled by the Commission over the last four years touch on Procter & Gamble’s interests:

P&G is the leading company involved in “buzz marketing” — employing regular people to talk up company products, often in exchange for free merchandise. P&G says it has 250,000 teens working for its Tremor division. P&G sends them items, and they are supposed to talk to friends about the products.

The head of the Tremor division told USA Today in 2005, “If we’ve done our work correctly, they talk to their friends about” the gifts. Tremor doesn’t tell members to say they are part of Tremor, he explained, “because you never tell a [panelist] what to say.”

In 2005, Commercial Alert, a group that aims to curb excessive commercialism, petitioned the FTC to investigate whether buzz marketing operations violate federal rules on deceptive advertising. The basic FTC rule is that paid marketers must disclose that they are paid.

The Commercial Alert petition asked the FTC to review evidence that “companies are perpetrating large-scale deception upon consumers by deploying buzz marketers who fail to disclose that they have been enlisted to promote products. This failure to disclose is fundamentally fraudulent and misleading.”

The petition specifically focused on P&G, arguing that “the Commission should carefully examine the targeting of minors by buzz marketing, because children and teenagers tend to be more impressionable and easy to deceive. The Commission should do this, at a minimum, by issuing subpoenas to executives at Proctor & Gamble’s Tremor and other buzz marketers that target children and teenagers, to determine whether their endorsers are disclosing that they are paid marketers.”

A year later, the FTC responded. The Commission agreed with the thrust of Commercial Alert’s argument: “In some word-of-mouth marketing contexts, it would appear that consumers may reasonably give more weight to statements that sponsored consumers make about their opinions or experience with a product based on their assumed independence from the marketer.” But then the Commission declined to undertake an investigation or rule-making, saying it would consider matters only on a case-by-case basis. The P&G case — involving a quarter of a million teens who are not instructed to disclose their relationship to the company — apparently was not noteworthy enough.

“Instead of acting like a watchdog, the Commission is more like a docile lapdog nestled in the lap of its corporate masters,” said Gary Ruskin, Commercial Alert’s executive director at the time

A major emerging technology for consumer products is RFID (Radio Frequency Identification) systems. These systems, involving the attachment of tiny, trackable electronic chips to products (or people, pets and cars), offer the possibility of precise inventory control and management. Privacy advocates say these systems also portend some major privacy concerns.

The Electronic Privacy Information Center (EPIC) warns of the possibility of “an Orwellian world where law enforcement officials and nosy retailers could read the contents of a handbag — perhaps without a person’s knowledge — simply by installing RFID readers nearby.” There are concerns about retailers and manufacturers being able to track consumers once they leave the store.

These issues are being taken seriously in Europe. There, says EPIC executive director Marc Rotenberg, “the European Commission has undertaken an extensive public consultation and has recently held several high-level events.” The European Commission is now soliciting comments on proposed privacy standards for RFID technologies.

In the United States, in 2004, the Federal Trade Commission held a workshop on RFID issues. P&G presented at the workshop, detailing the company’s privacy policies and how it would ensure that RFID technologies were not abused. EPIC also presented.

Childhood obesity rates in the United States have more than tripled over the past four decades. The childhood rate of Type II diabetes, once known as “adult-onset” diabetes, has more than doubled in the past decade. Many researchers have concluded that skyrocketing childhood obesity rates are related to the onslaught of junk food marketing targeting kids. The staid Institute of Medicine finds, “Food and beverage marketing practices geared to children and youth are out of balance with healthful diets and contribute to an environment that puts their health at risk.”

Although the Majoras FTC did not ignore this issue, it did very little to upset the junk food marketers. It emphasized that many factors besides marketing are driving the obesity epidemic. And, as Majoras said in 2007, “the focus of the FTC/HHS [Department of Health and Human Services] joint initiative on childhood obesity has been on marketing and industry self-regulation.”

In recent years, facing the threat of litigation, federal legislation, state and local regulation, and citizen pressure campaigns — just about everything but serious FTC action — the junk food companies have adopted some marketing guidelines to curb some of their most aggressive practices. But the guidelines remain voluntary and are non-enforceable. There has been no regulatory action from the FTC.

Other FTC policy issues implicating Procter & Gamble include online marketing to kids, product placement on TV and mergers (the FTC in 2005 approved a controversial, $57 billion P&G takeover of Gillette, a decision from which Majoras recused herself.) There are many others.

There have been no suggestions that Majoras is violating any laws in going to work for Procter & Gamble, or that she will in the future, or that she did favors for P&G in anticipation of a job with the company. Indeed, Washington insiders did not raise an eyebrow when she announced her new position. After all, this “is how things work.”

Conflicts of Interest and the Making of a
'Digital Data Colosus'

The Federal Trade Commission under Deborah Platt Majoras considered at least one matter of very direct concern to her new employer, Procter & Gamble: the 2005 P&G acquisition of Gillette. Majoras recused herself from this merger review, not because she knew she would later assume a position with P&G, but because P&G was represented by the global mega-law firm Jones Day. Majoras worked in Jones Day’s antitrust department prior to being appointed to the FTC, and her husband continues to work in the same department.

In 2007, however, Majoras decided to participate in a different case involving a party represented by Jones Day, the Google-DoubleClick merger. Google is not only the main Internet search engine, it dominates the market for search-related ads (the sponsored links that appear when a user does a search on Google), and is heavily involved in other Internet advertising businesses. DoubleClick places ads on websites, based on a vast database of information of Internet users’ record of visiting sites with DoubleClick-placed ads.

The Electronic Privacy Information Center (EPIC) and the Center for Digital Democracy (CDD) asked Majoras to recuse herself from the case, which they called “the most significant review of consumer privacy interests to ever reach” the FTC. They noted her prior employment with Jones Day, her husband’s ongoing employment at the firm, the involvement of the firm’s antitrust unit in the Google-DoubleClick merger, and her husband’s responsibility for Jones Day “business development.”

Shortly before the FTC approved the the Google-DoubleClick merger, Majoras announced she would not recuse herself from the approval review. Her earlier recusals, she said, occurred in the 16 months after she left Jones Day (a government-mandated year-long “cooling off” period — which she voluntarily extended by four months — before she could consider matters involving her former employers), and when her husband had been an “equity partner” at the law firm. As an equity partner, his income directly depended on Jones Day’s annual earnings; as a “fixed participation” partner, his income was not dependent on Jones Day’s earnings, she said. Majoras also said that Jones Day was representing Google and DoubleClick before European antitrust authorities, but not before the FTC.

EPIC and CDD expressed disappointment with Majoras’ decision, especially in light of strange developments on the Jones Day website. After the groups petitioned for Majoras’ recusal, they discovered, Jones Day altered its website to remove reference to its handling of the the Google-DoubleClick merger.

But their disappointment was much more intense just a few weeks later, at the end of 2007, when the FTC approved the merger by a 4-1 decision, with Majoras in the majority.

In its decision approving the merger, the FTC applied a conventional antitrust analysis. The Commission found that Google and DoubleClick serve distinct markets — search-based text ads (Google’s key area) and display ads appearing on third party websites (DoubleClick). Thus, they found, the merger would not substantially reduce competition. They rejected the idea that they should review the merger from the perspective of a single online advertising market. They also concluded that, post-merger, Google would not be able to leverage power from its search ads into the display ad market. The Commisioners acknowledged privacy concerns arising from the merger — given the very extensive data that the combined companies will possess — but argued that such matters were not appropriately considered in an antitrust review.

A dissenting decision from FTC Commissioner Pamela Jones Harbour disagreed with this analysis. More centrally, however, she argued that conventional antitrust analysis was inappropriate given the special features of the Google-DoubleClick merger. The key concern, she argued, was “network effects,” which occur when something becomes more valuable as more people use it.

“By purchasing DoubleClick,” she wrote, “Google will acquire data that will contribute to, and exacerbate, network effects. As a result, the Google/DoubleClick combination is likely to ‘tip’ both the search and display markets in Google’s favor, and make it more difficult for any other company to challenge the combined firm.” In short, she argued, the combined firm would have so much data and information about users, that other advertising companies will not be able to compete — they will not be able to help advertisers target their ads as precisely.

This analysis put into traditional antitrust language the key policy issues raised by consumer groups in the case: that the combined firm would amass enormous storeholds of personal consumer information, raising very serious privacy concerns, enabling very targeted marketing efforts often without consumers’ meaningful consent (and often involving kids), and gaining the power to favor — and direct Internet users to — certain websites and content at the expense of other sites.

“By permitting Google to combine the personal details, gleaned from our searches online and YouTube downloads, with the vast repository of information collected by DoubleClick, the FTC has sanctioned the creation of a new digital data colossus,” said the Center for Digital Democracy’s Jeff Chester, in response to the FTC decision. “Despite the FTC’s claims, privacy is most certainly an antitrust issue. A key component of the online market dominance that companies such as Google have achieved is the aggregation and analysis of consumer profiles, including the merger of far-flung data sets and vast data warehouses that only a handful of companies now have at their disposal.”

Marc Rotenberg of the Electronic Privacy Information Center emphasized that the FTC’s narrow market analysis was misguided, given that the “consumers” it considered were web publishers, rather than Interet users.

“Unlike typical merger reviews where the Commission may assume that the market analysis of suppliers and consumers captures all of the relevant parties, the market for Internet-based advertising is different,” he explained in responding to the FTC approval of the merger. “These companies target individual consumers based on their interests, their activities, even their personal behaviors. The ‘consumers’ for Internet advertisers are web-based publishers. Assuming there is healthy competition, they make choices among competitors for advertising services. But for the consumer whose data is gathered, there is no choice. The market relationship exists between the advertiser and the publisher. It does not include the consumer. In such circumstances, the market failure is evident and the Commission has a responsibility to address the problem.”

Rotenberg also said he was surprised by the decision, given that the FTC had made a “second request” — asking for additional information from the merging parties — and such requests usually indicate the Commission will at least ask for modifications on binding and enforceable promises before authorizing a merger. “What happened,” he asked, “between the time of that decision to pursue a second request and the decision reached today that produced a merger outcome without any conditions?”

“We remain troubled by the role of the Jones Day law firm in this proceeding,” he said. “The ties between the Federal Trade Commission and the Washington office of Jones Day are everywhere apparent, even leading up to the recent hiring by Jones Day of key Commission staff while the merger review was taking place. This should be investigated.”